Experts told Financial Planner magazine they expected consolidation to happen at an increasing pace over the next year, suggesting a struggle may lay ahead for the smaller players as regulatory pressures intensify.
Providers acknowledged that the regulator looks set to take an ever closer eye on the sector following the capital adequacy rule changes and the recent scathing letter to Sipp providers from the FCA.

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Jeff Steedman, head of Sipp & SSAS business development at Xafinity, believes there is a clear future emerging for the Sipp market – and one which may have echoes of the past about it.
He said: "The Sipp market seems destined to split into two sectors – the platform Sipp product and the full Sipp.
"This is not perhaps dissimilar to the PP and Sipp split a decade or more ago, as the large PP/platform players have sought to associate themselves with the attractiveness of the Sipp proposition.
"We anticipate more acquisitions of businesses that either need capital or scale."
Asked whether the market is likely to grow or shrink, a number of firms said they believed consolidation was probable.
Greg Kingston, head of marketing & proposition at Suffolk Life, said: "The 'traditional' Sipp market – the providers that started it all – has reached saturation point and is unlikely to grow any further.
"Platform Sipps, with greater digital functionality and access to other tax wrappers, will take the majority of new business in the future. The new business coming in to the more bespoke Sipp operators will be offset by the business they lose to these providers. This lack of growth will continue to drive consolidation."
Claire Trott, head of technical support, at Talbot and Muir, agreed consolidation seems likely before capital adequacy changes.
She said: "This may be in part because some providers are unable to sustain their current business model, but in a lot of cases, it will be those that do not see Sipps as their core business that will be looking to exit.

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"The implications on providers with small books of business, who previously just saw their Sipp as an add on, may not feel tying up the capital needed to continue to run the Sipp book is worth their while.
"We have already seen this from some providers, which have clearly been in negotiations for some time."
The predicted Armageddon of capital adequacy failed to materialise when the FCA watered down its proposals, though there is some debate still on the impact of the sector.
Andy Leggett head of business development, Sipps at Barnett Waddingham said: "The capital adequacy requirements were less onerous than the original proposals, relieving some pressure.
"However, a still rising regulatory bar means that shedding non-core or sub-scale Sipp businesses of decent quality will remain attractive to both buyers and sellers."
Robert Graves, head of pensions technical services at Rowanmoor, said: "Although holding non-standard assets clearly affects the amount of capital required to meet the new requirements, it is usually the smaller operators who permit such investments.


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"In a competitive market the holding of large sums of capital for these requirements makes it difficult for smaller operators, in terms of investment, expansion or development opportunities. This could be seen as being at odds with the FCA's competition objectives, a requirement not placed upon its predecessor, the FSA.
"These new requirements also make acquisition of new business extremely costly especially for smaller operators. By acquiring a relatively small amount of new business, not only would they have to meet the purchase costs, but the funds to meet the capital requirements would increase, which effectively reduces working capital further."
But while some predicted smaller players will be hit hardest, John Fox, chief executive of Liberty Sipp, disagreed, saying: "Bigger is no guarantee of better. Liberty may be small in comparison to many of our rivals, but as a late entrant to the market (2007) we have been able to avoid the mistakes of our older competitors - growing at a steady rate and ensuring that customer service standards don't slip as we take on more customers."
The Budget reforms are undoubtedly one of the major factors ahead for the market.
Mr Fox sees this as a boon for his firm, saying: "When the new pension freedoms come into force next April, it is the smaller providers who will be best placed to adapt their products to meet customer expectations, and the response time that their advisors require."
Ms Trott sees the reforms being more of a challenge for those that haven't historically offered products such as flexible drawdown or drawdown within their products.
Mr Leggett predicted that after initial implementation, one of the biggest difficulties will be the FCA setting – or providers having to predict – the extent of a provider's duty of care.
Mike Morrison, head of platform technical at AJ Bell, said: "The proposed changes should be positive for Sipp operators - issues will be the industry capacity to introduce and administer the new options, and how to price for money that might not stay with them. Retirement will be very much about investment and it will be important to have the widest range of investment options." 


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Expert view: What's your assessment of regulatory pressures, in particular the new regulatory capital rules?

Robert Graves, head of pensions technical services at Rowanmoor

Mr Graves believes there is a "fundamental problem" with the FCA's decision to use assets under administration to calculate capital adequacy and said the FCA should have adopted the industry's suggestion of using the number of SIPPs instead.
He said: "The effects of using AUA to calculate the initial capital adequacy requirement only compounds the issue when calculating the capital surcharge, with the latter dependent upon the number of SIPPs that hold non-standard assets and the AUA."

Claire Trott, Head of Technical Support, Talbot and Muir

Ms Trott believes changes should be seen as a positive in the long run.
She said: "The SIPP market has had some bad press over the years and anything that can bring trust back to the sector can only be good. This inevitably means that some providers will exit the market but this may not be such a bad thing. There will still be plenty of choice and diversity for advisers and clients but with the added confidence that those still committed to the market will be here for the foreseeable future."

Andy Leggett, Head of Business Development, Sipps, at Barnett Waddingham

Mr Leggett anticipates the new regime to be "very complex" in application and said expectations, particularly around the valuation of non-standard assets, "need to be clarified urgently".
He said: "This must be done publicly to ensure guidance is complete, robust and applied consistently.
The FCA will have to demonstrate its willingness to enforce the new rules – a failing of its predecessor re the current regime – and to make clear distinctions between genuine errors vs. incompetence, inadequate systems or deliberate subversion.

Greg Kingston, Head of Marketing & Proposition at Suffolk Life

He said: "There's a sense of growing frustration from the regulator, highlighted in their recent Dear CEO letter and by the recent enforcement actions they've taken. The regulator's far from finished with SIPP providers, and I anticipate a further series of provider visits around September 2016 – the time when the new capital requirements are implemented. We can expect the regulator to take a firmer line with SIPP operators who are not sufficiently capitalised.

John Fox, chief executive of Liberty Sipp
"The biggest impact is likely to come from the moving of the standard asset goalposts. By confirming that commercial property is a standard investment, the FCA has ended months of distracting speculation.
There are some surprising anomalies in the formula for capital. It's odd that those SIPP providers with a very high proportion of clients with non-standard assets will see their capital requirement fall, while those with very few non-standard clients will see their capital adequacy bar raised."    

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